“There’s a reason there are Tea Partiers out there, and when you look at it, anger at the bailout is one of the first things they talk about...This Treasury Department and the previous Treasury Department bear some of the responsibility for not being straightforward with the American people."
Neil Barofsky
TARP inspector general
April 28
Bottom line on the new Chris Dodd reform proposal: much watered down from his earlier proposal and maybe even weaker than the weak House bill.
Here’s the summary from A New Way Forward: “The bill contains no real solution to too-big-to-fail, no real enforcement guarantees, the bad guys are off the hook, the financial system will continue to be as big and dangerous and full of risk taxpayers will likely own. Dodd made a few good steps forward and major steps backwards”. The rest of their analysis is here.
From the Atlantic Wire, a solid roundup of assessments. The takeaway: Too many concessions to the big banks, and it is still faces many obstacles to passage. And who exactly besides Chris Dodd and Wall Street thinks it’s a great idea to house consumer protection within the Federal Reserve? Only last year, Reuters reminds us, Dodd was labeling the Fed “an abymsal failure."
But Elizabeth Warren, the congressional bailout monitor who has campaigned aggressively for strong reform, including an independent agency to protect financial consumers, offered a lukewam endorsement of Dodd’s plan.
I’ll give Alan Sherter the last word. When Dodd says that he doesn’t have the votes for an independent financial consumer protection agency, what he really means is that “lawmakers have more to gain by advocating the interests of banks than those of consumers.”
The Obama administration, which has increasingly been adopting a can’t do attitude when it comes to putting real teeth into financial regulation, now wants to take out the teeth already in place.
Treasury officials are signaling they’d rather not have the same aggressive special inspector general overseeing the $700 billion federal bailout anywhere near their new $30 billion bank subsidy to encourage lending to small business.
I wrote about that inspector general, Neil Barofsky, a couple of weeks ago, suggesting he was one of the few public officials actually trying to protect our money rather than just acting as a rubber stamp for Wall Street’s raid on the U.S. Treasury.
Barofsky has issued a series of scathing reports raising questions about federal officials’ handling of the Troubled Asset Relief Program.
Treasury officials contend that although the $30 billion would come from unspent TARP funds, it’s technically not TARP. So Barofsky should butt out. Their real reason for not wanting Barofsky around is simple: the banks don’t like him looking over their shoulders.
You can’t blame the banks for that. No doubt it’s a lot more fun to spend your federal handout without some nosy former federal prosecutor scrutinizing every move you make.
But for the Obama administration to go along with it is troubling and baffling. The president promised an unprecedented level of accountability, understanding that openness would go a long way toward restoring credibility in the financial system and the government’s ability to oversee it.
But Treasury officials appear to be more concerned with keeping the bankers happy than they are with keeping them honest.
The news about Barofsky surfaced as the administration appeared to be backing away from its recent embrace of former Fed chief Paul Volcker, who favors limits on bank size and risky financial trading. Predictably, the financial titans were balking at the proposals.
The administration’s move against Barofsky is both bad policy and bad politics. It seems designed to hand live ammunition to the mistrustful antigovernment troops of the Tea Party.
Meanwhile, Congressional Democrats have been quiet on the issue. The president and the Democrats have accomplished what at one time would have been seen as a nearly impossible task: handing the mantle of accountability and openness over to Republicans, who are howling with outrage over the idea of keeping Barofsky away from the small-business lending subsidy.
Rep. Darrell Issa, R-Ca., said earlier this week: “Denying SIGTARP the ability to defend taxpayers sends a chilling message that IGs who conduct real oversight will be punished for holding this Administration accountable.”
At the very least, the administration needs to come to its senses and regain its commitment to transparency. Let Barofsky do his job. The administration should be paying better attention to his criticisms, not trying to get rid of him.
Tonight’s state of the union speech will be the least important of President Barack Obama's political career. No doubt it will be a dazzling performance, as the president pivots from pugilistic to professorial, from left to right. We know the president comes through with the rhetoric in the clutch. But the true test of his presidency is no longer what he says he will do or how he says it.
The test is whether Obama and his team wage a credible and effective fight for financial reform and economy recovery for Main Street, with the same vigor and urgency they threw into the Wall Street bailout. That will take more than a speech or even a series of speeches. It will take a real self-critical assessment of the president's strategy up til now and a tough, savvy and sustained political battle plan in the face of significant obstacles.
Both have been lacking in the president's approach so far. That’s the real pivot he needs to make now, and it has only partly to do with oratorical skills.
Obama’s credibility is suffering because he and his team keep suggesting that they have overseen a recovery that most people aren’t enjoying. They helped engineer a bailout that they say was absolutely necessary that helped the financial sector but left out the rest of us. Obama and his team don’t have credibility because they’re working Capitol Hill as hard as they can, not to create jobs for millions of out of work Americans, but to save the job of one of the few Americans who could have helped forestall both the financial crisis and the Wall Street –friendly bailout but didn’t, Ben Bernanke, head of the Federal Reserve.
Sen. Tom Harkin summed up what many people are feeling in reacting to comments from Tim Geithner, Obama’s treasury secretary who had warned that the stock market would tumble if Bernanke were not confirmed.
Geithner was just acting as a messenger boy for Wall Street, Harkin suggested. “How long will our economic policy be held hostage to Wall Street who threaten us that there’ll be total collapse if we don’t do everything they want? Wall Street wants Bernanke,” Harkin said. “They’re sending all these signals there’ll be this total collapse if he’s not approved. You know, I’m tired of being held hostage by Wall Street.”
Wall Street doesn’t like key planks of the president’s financial reform plan, like the Consumer Financial Protection Agency and his recently announced plan to separate some of the largest bank’s risky business from its more traditional functions. The Senate’s banking committee chair, Christopher Dodd has signaled he’s ready to surrender on the consumer protection agency. Will the president announce tonight how he and his team plan to win that fight when congressional leaders are giving up? Or will the president treat the consumer protection agency and bank size as just details that should be left up to Congress, as he did in the battle over crucial aspects of health care reform?
A different kind of hostage crisis helped bring down a previous Democratic president. All Jimmy Carter had to grapple with were a bunch of Iranian revolutionaries holding 53 Americans in an embassy in Tehran. President Obama’s challenge is much tougher – 250 million people and our entire political process held hostage by some of the world’s wealthiest corporations and individuals. Carter’s hands were tied. Are Obama’s?
NO COMPROMISE TOP 10
As the debate over financial reform moves to the Senate I’ve written a couple of open letters to my senators. I’m not endorsing any particular legislative proposals but I do outline the items that shouldn’t be compromised.
Feel free to borrow my ideas for letters to your own senators, or to disagree. Whether you agree or disagree, I’d like to hear what you think.
What’s your bottom line on what financial reform should contain?
OPEN LETTER TO SEN. DIANNE FEINSTEIN
Dear Sen. Feinstein:
Throughout the economic crisis, you have continued to raise serious questions about whether the bailout was protecting the financial industry or the public. Now is the time to turn that skepticism into constructive action.
Sen. Feinstein, voters are counting on your continuing leadership to make sure Congress provides real financial reform to prevent future meltdowns and bailouts stemming from reckless practices and lack of government oversight.
Though you voted for the bailout, at the time, in September 2008, you compared the preparations for the so-called financial rescue to the build-up to the war in Iraq. "There is a great deal of cynicism among those of us who have to live with having voted to go into Iraq based on misinformation and intelligence that later turned out not to be truthful," you said.
On March 23 of this year, you were among a group of senators who met with President Obama to express concern that his administration’s proposals didn’t go far enough, and that his economic advisers were many of the same people who oversaw the deregulatory fever that played such a key role in our financial crisis.
Unfortunately, Sen. Feinstein, your concerns have been borne out.
Financial reform as passed by the House of Representatives is filled with loopholes. Lobbyists from financial firms recently rescued from ruin by taxpayers have mounted a fierce campaign to maintain a system in which “too big to fail” institutions” can manipulate the regulatory system.
The good news is that Sen. Chris. Dodd has proposed much stronger legislation, the Restoring American Financial Stability Act of 2009. By all accounts, his proposal faces a bruising battle as the financial industry gathers all its forces to protect its interests. Sen. Dodd has indicated that compromise is inevitable.
But Sen. Feinstein, the stakes are too high to compromise on the most important aspects of reform. Some of these are contained in Sen. Dodd’s proposal. Others are contained in other legislative proposals under consideration in the session about to begin.
Please help make sure that these key elements of reform are not the victims of compromise:
• Vote against the confirmation of Ben Bernanke to another term as Federal Reserve chair. He was at the center of the bubbles before the meltdown and also helped engineer a bailout that profited Wall Street while Main Street suffered.
•Reinstate a modern-day form of Glass-Steagal, as proposed by Sens. McCain and Cantwell.
•Audit the Federal Reserve, as proposed in legislation sponsored by Reps. Paul and Grayson, which would open up the operations of the institution to public scrutiny for the first time.
•Reconsider and approve judicial cram-downs, which would give bankruptcy judges the power to lower mortgage payments. This would put real teeth in the Obama Administration’s anti-foreclosure efforts.
In the Dodd bill:
• Support creation of a strong, independent Consumer Financial Protection Agency, with regulatory oversight of the Community Reinvestment Act (not provided in the House bill)
•Support creation of a an Agency for Financial Stability, responsible for identifying, monitoring and addressing systemic risks posed by large complex companies and their products, with the authority to break up firms if they pose a threat to the financial stability of the country
• Remove exemptions (contained in the House reform bill) for banks and credit unions with assets of less than $10 billion – about 98 percent of deposit-taking institutions in the country.
• Bar pre-emption (also allowed in the House bill), which would let states, if they choose, to pass tougher financial regulations for nationally chartered banks.
• Don’t exempt other consumer-financial businesses, such as auto dealers from oversight by the Consumer Financial Protection Agency (as the House bill does.)
• Give two agencies, the Commodities Futures Trading Commission and the Securities and Exchange Commission broad authority to force derivatives markets onto exchanges where they pose less risk.
I’m urging you to put everything you’ve got behind this fight to protect consumers and homeowners. Voters put their trust and faith in you to see that their interests are protected, not compromised away. We’re relying on you to convince your colleagues to put the public’s interests ahead of the private profits and the power of the financial giants.
Sen. Feinstein, your skeptical instincts have been right since the Bush administration tried ramrod through a 3-page $700 bailout. Now everyone in the country can plainly see how that bailout benefited the large financial institutions but did little for small business, consumers and homeowners. Thank you for your raising the right questions in the past. Thank you for helping us get back on the right track now.
Sincerely,
Martin Berg
Editor
AN OPEN LETTER TO SEN. BARBARA BOXER
Dear Sen. Boxer:
Voters are counting on your continuing leadership to make sure the promise of real fundamental financial reform becomes a reality.
In 1989, you were one of a handful of senators to vote against repeal of the Glass-Steagall Act, the Depression-era law that had kept banks’ traditional business separate from their riskier speculative business.
Though you were in the small minority opposing the deregulatory fever sweeping Washington, your vote showed tremendous leadership, courage and prescience.
You withstood the pressures from financial industry lobbyists and contributors as well as the demands of your own party. As you know, then-President Clinton and his economic advisers, after initially opposing the repeal, eventually made a deal to sign off on the dismantling of Glass-Steagall.
We all know what happened over the last decade – record profits for financial institutions while the economic foundation for American families has gotten increasingly shaky. Voters have watched with dismay as the massive federal bailout has helped create even fewer financial institutions, with even greater wealth and wielding even more political power.
Neither the Obama administration’s proposals nor the bill passed by the House of Representatives offer sweeping reform, nor do they do anything to break up the power of the “too big to fail” institutions. They also don’t do enough to ease the threat these banks continue to pose to the rest of the economy.
Now Sen. Christopher Dodd has proposed much stronger legislation, the Restoring American Financial Stability. By all accounts, his proposal faces a bruising battle as the financial industry gathers all its forces to protect its interests. Sen. Dodd has indicated that compromise is inevitable.
But Sen. Boxer, the stakes are too high to compromise on the most important aspects of reform. Some of these are contained in Sen. Dodd’s proposal. Others are contained in other legislative proposals under consideration in the session about to begin.
Please help make sure that these key elements of reform are not the victims of compromise:
• Vote against the confirmation of Ben Bernanke to another term as Federal Reserve chair. He was at the center of the bubbles before the meltdown, helped engineer a bailout that profited Wall Street while Main Street suffered, and has fought increased transparency in the financial system.
• Reinstate a modern-day form of Glass-Steagall, proposed by Sens. McCain and Cantwell.
• Audit the Federal Reserve, as suggested in the proposal by Reps. Paul and Grayson, which would open up the operations of the institution to public scrutiny for the first time.
• Reconsider and approve judicial cram-downs, which would give bankruptcy judges the power to lower mortgage payments. This would put real teeth in the Obama Administration’s anti-foreclosure efforts.
In the Dodd bill:
• Support creation of a strong, independent Consumer Financial Protection Agency, with regulatory oversight of the Community Reinvestment Act (not provided in the House bill).
• Support creation of a an Agency for Financial Stability, responsible for identifying, monitoring and addressing systemic risks posed by large complex companies and their products, with the authority to break up firms if they pose a threat to the financial stability of the country.
• Remove exemptions (contained in the House reform bill) for banks and credit unions with assets of less than $10 billion – about 98 percent of deposit-taking institutions in the country.
• Bar pre-emption (also allowed in the House bill), which would let states, if they choose, to pass tougher financial regulations for nationally chartered banks.
• Don’t exempt other consumer-financial businesses, such as auto dealers from oversight by the Consumer Financial Protection Agency (as the House bill does).
• Give two agencies, the Commodities Futures Trading Commission and the Securities and Exchange Commission broad authority to force derivatives markets onto exchanges where they pose less risk.
I’m urging you to put everything you’ve got behind this fight to protect consumers and homeowners. Voters put their trust and faith in you to see that their interests are protected, not compromised away. We’re relying on you to convince your colleagues to put the public’s interests ahead of the private profits and the power of the financial giants.
Sen. Boxer, you were right in 1989 when you were in the minority. Now everyone in the country can plainly see the wreckage from the great deregulatory experiment you opposed. Thank you for your vision. Thank you for helping us get back on the right track now.
Sincerely,
Martin Berg
Editor
Looks like the top lawyer and other fat cats at AIG, whose salaries are now paid by American taxpayers, are maneuvering to be able to escape limits on their pay. Today’s Wall Street Journal reports that a Ms. Anastasia Kelly, the General Counsel of AIG, and four other insurance executives gave notice last week that they were “prepared” to leave by the end of the year if their pay is cut by Kenneth Feinberg, the government “pay czar” who sets compensation levels for companies that got bailout money. AIG got $182 billion in taxpayer dollars. AIG’s top employees want to bust the $500,000 pay cap set by Feinberg.
A simple homily illustrates the folly of letting Wall Street govern itself free of restraints so that a handful of financial firms could become indispensable to our nation’s economy: “don’t put all your eggs in one basket.”
One of the precursors of the financial meltdown was the combination of zero enforcement of the antitrust laws and the repeal of Depression-era safeguards against allowing banks to engage in speculation in the stock markets. That created a handful of financial institutions that were individually and collectively so interwoven with our economy that when the crash came last year, we were told that they had to be rescued or else their collapse would take down the entire system. These giant firms were so important that, we were told, they were just “too big to fail.”